On-chain analytics provides alpha with simple strategies.
I'm going to discuss 2 strategies here -- a long strategy that would have returned 157% thus far and a short strategy that would have done better than 50% on the decline during 2022. This means you can use this data to make money in the bull and bear market (potentially).
This lesson explains just the following image. 
You'll see $BTC 's price in black (since January 1, 2022). The red line is the aggregate of stablecoin supply.
The dark green line is a 50-day moving average on the stablecoin supply.
This is a late indicator, but precisely because of that, it indicates periods of higher confidence.
Let me explain how to use that (hypothetically) with 2 strategies.
Strategy 1 The aggregate stables closed above their SMA 50 when BTC was priced at ~$28k.
It has not dropped below since. The strategy would be to buy and hold BTC during this period. I'd be wary of too much leverage, as higher confidence for a positive cycle does not mean there won't be significant drawdowns. Rather than HODL, you could always dollar cost average (DCA) during these periods -- buying $100 of BTC a week, for example.
Strategy 2 These data also identified periods when shorting might have been possible (from ~41k to ~$26). The idea is to short BTC when the stable aggregate (red line) crosses below the SMA 50 (green line). My view is that shorting cryptos should always be tactical, and if you’re not a professional, stay away from this stuff. I'd add a profit taker. For example, after your short position earns 25%, close out 33% of your short position and book those profits. That way, you'll sleep more soundly and even out your returns.
Finally None of this is financial advice. DYOR. Cryptos are risky, and your entire investment can go to $0 (or worse if you use leverage!). I'm simply giving you ideas -- hopefully 2. You’ve learned:
- That on-chain data + very simple momentum approaches can potentially yield excellent results. The alpha comes NOT from the sophistication of the strategy but from the quality of your data.
- Aggregate stablecoin volume is a unique data source that can be used (at least potentially) in just this way to achieve easy alpha.
Access to this data does cost $1100+ a month. And what you get is a firehose’s worth of data -- there is just so much of it, and none of it is parsed for what is relevant or what isn’t. What to do? Well, for non-accredited investors, we have offerings at 1.2 Labs. Accredited investors should just reach out to me. If you want free stuff, then follow me and join our newsletter for similar lessons.
Happy Trading!
